Euro on hold ahead of key ECB meeting

The euro continues to trade quietly this week. In North American trade, EUR/USD is trading at 1.1795, up 0.13% on the day.

Market eyes ECB changes to forward guidance

The euro has been drifting throughout the week. This was to be expected, as the market awaits the ECB policy meeting on Thursday (11:45 GMT). As well, the global calendar has been very light, with no tier-1 releases out of the US or the eurozone ahead of the ECB’s meeting.

The ECB released a strategy review earlier in July, and ECB President Christine Lagarde stated at the time that the Bank would need to align its forward guidance with the strategy review. Analysts quickly combed through the strategy review with a fine-tooth comb in order to determine what changes to forward guidance the ECB has in mind.

What key changes can we expect from the ECB? The strategy review raised the inflation target to 2%, which is a slight adjustment from the previous “below, but close to 2%” target. As well, the review stated that the Bank would allow inflation to overshoot the target if it was a “transitory period”.

This points to a dovish stance, as the ECB is unlikely to resort to higher rates until inflation rises to 2%, or even a bit higher. This means that barring any unexpected hawkish moves or rhetoric at the meeting, the euro could weaken after the decision.

On Friday, the market will get a look at some key data, with the release of Service and Manufacturing PMIs for June. Both sectors are performing well, with the PMIs expected to show strong expansion across the eurozone.

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EUR/USD Technical

• There is support at 1.1759. Below, there is support at 1.1711
• On the downside, we have resistance at 1.1867 and 1.1927

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